Executive SummaryProfessor Gupta, many organizations use financial methods to determine the viability of projects and decisions based in the initial required investment. The financial industry has many standards regarding these methods, with the most commonly used being Internal Rate of Return (IRR) and Net Present Value (NPV). Each method encompasses positives and negatives; however if either are used without fully understanding what their prospective results reveal, mistakes can be made and under-estimations of return will happen. In a recent case Lockheed Martin chose to use the Internal Rate of Return to value their Tri Star project. We have determined this to be a mistake and, through this case analysis, will show where the mistake happened. We also intend to explain how using the Net Present Value method will uncover a different, more realistic picture of the project’s return.

Introduction/MotivationCapital investment decisions are long term finance decisions designed to strategically invest in projects that will improve the value of the corporation for stockholders. There are several methods for determining which projects are worth investing in, but the best methods must take into account the net present value of the future cash flows resulting from the investment using an appropriate discount rate for the project and managements assessment of the risk involved. In the Lockheed case, which we will examine in detail below, the management made a decision to proceed with the Tri Star project based on a break-even analysis. As we will show, their analysis was flawed, failing to take into account the net present value of their investments resulting in a huge loss of value for the company.

Data/Analysis Section

In breaking out the data as referenced in the Harvard Business case study from the Lockheed Tri-Star situation, organizing the cash flows in a spreadsheet depiction offered the most clarity in analyzing the information.As seen above, @ 210 aircraft produced over the above time perior, the $900mm in up front costs are spread over the first 5 years (1967-1971), annual unit production costs of $490mm are spread over 6 years (1971-1976), and revenues are divided up in both 25% deposits ($140mm/yr from 1970-1975) and the balance of those revenues ($420mm/yr from 1972-1977).

In analyzing the cash flows @ 210 aircraft for those 10 years keeping in mind the 10% assumed cost of capital to Lockheed, the NPV of the project was -$530,950,000; the IRR of the project was -9%, and the project lost $480,000,000 when netting the costs of the project with the revenues.

In the scenario where production is assumed @ 300 aircraft for that time period, the $900mm in upfront costs remains over the first 6 years, however unit production costs rise a bit to $625mm/year ($12.5mm/aircraft at 50 aircraft/year) as do revenues assuming all built aircraft are sold at that same $16mm price/aircraft and in a similar deposit and balance paid scenario.

In analyzing the cash flows @ 300 aircraft for those 10 years assuming the same 10% cost of capital, the NPV of the project improved but remains negative at -$249,440,000, the IRR remains sub par at 2%, but the accounting break even analysis actually shows a small profit of $150,000,000.

The management’s breakeven analysis determined that 210 units would need to be sold to start making money on the Tri Star project. However, if the Net Present Value of the project is used in this analysis as shown above, it is clear that an excess of 378 units would need to be sold in order to make the net present value of the project come out positive. At this level of production, it was assumed that the per unit cost of production would be further reduced to $11.75 million.

Conclusion
The investment decision made by Lockheed to proceed with the Tri Star project was not very well thought through. Even though break even...

...﻿第一份答案:
(A)
The payback is 35,000/5,000= 7 years
Computation of the NPV :
NPV= -35,000 + Σ 5,000 / ( 1 + 12%)^ 15
i=1 NPV = $- 945. 67
Computation of the IRR :
0= -35,000 + Σ 5,000 / ( 1 + IRR)^ 15
i=12 IRR= 11.49%
The NPV of this project is negative and the IRR is lower then the Cost of Capital (12%) Rainbow products shouldn’t go for it.
(B)
Based on the perpetuity formula we can compute the PV in this case :
Computation of the PV :
PV= Cash flow per year/ cost of capital)
=4,500 / 0.12
= $37,500
Computation of the NPV :
NPV= -Initial investment + PV
= -35,000 + 37,500
NPV=$2,500
Rainbow products could buy this machine with the service contract if they intent to use it in the long-run.
(C)
Computation of the PV :
PV= C/ k-g
In this case C (end of year perpetuity payout) = 5,000-1,000= $4,000 k= 12%, discount rate
g= 4%, growing rate at perpetuity
PV= 4,000 / (0.12-0.04) = $50,000
Computation of the NPV :
NPV= -35,000+ 50,000 = $15,000
The rainbow products company should invest in this project because its NPV is largely positive because of the reinvestment of 20% of the annual cost, even though this is in a very long term vision.
2.
•Computation of the IRRs (with financial calculator) :
Project,
-Add a New Window : IRR = 34.61%
-Update Existing Equipment : IRR = 18.01%
-Build a new stand : IRR = 31.20%
-Rent a larger stand: IRR = 1207%
All projects are acceptable because all the IRRs are higher than the discount rate(15%)...

...NOVA School of Business and Economics
Corporate Finance, 2nd Semester 2012/2013
CaseStudy
TOSCO is a company listed in the Portuguese Stock Exchange operating a supermarket
chain established in Portugal for many years. The market for traditional food retailers is saturated,
and there is no room for growth under the same business model. TOSCO’s shareholders have been
pressuring the management to pursue new opportunities in order to increase the value of their
shares.
The management of TOSCO has hired Nova Investment Bank (NIB) to study the possibility
of expanding their activities to Spain. For this they will pay NIB a fixed fee of €100,000. You are an
analyst at NIB and your job is to perform a financial analysis of this opportunity. Bellow you can
find the number of stores they plan to have fully operational in the beginning of each year for the
next 3 years (some will be rented, others will be bought).
# New Stores
Y0
0
Y1
10
Rent
Y2
20
Buy
Y3
10
Buy
Also, you know that today the average monthly rent per square meter in Spain is €30 and
the market value per square meter sold is €6,000. Additionally, TOSCO will need to invest
€13,000,000 in the acquisition of a distribution center one year before the first stores open. Own
stores will be fully depreciated in 20 years.
In Spain, each store will employ 50 employees, and the distribution center will employ 75....

...UNIVERSITY Fuqua School of Business FINANCE 351 - CORPORATE FINANCE Hint Sheet: Congoleum Corporation Prof. Simon Gervais Fall 2011 – Term 2
This case illustrates a leveraged buyout and highlights some of its value-creating aspects. You are invited to combine the valuation principles and methods discussed in the course to evaluate a complex transaction from the perspectives of the various participants. Here are some guidelines for your valuation analysis. • Overview of the Valuation Process. Given the nature of the forecast data, it is useful for valuation purposes to treat the 1980-1984 period diﬀerently from the post-1984 period. In fact, the case writer hinted at the possibility of another reorganization at the end of 1984 in the note to Exhibit 14. Throughout, assume that time 0 is year 1979. • Make sure that you notice the changing debt ratios in 1980-1984. Which is the best valuation approach to deal with this? • Free Cash Flow. As usual, the following (unlevered) free-cash-ﬂow formula should prove useful: EBIT = Operating Income − Corporate Expenses − Depreciation, UFCF = (1 − tc )EBIT + Depreciation − Change in NWC − Capital Expenditures. Note that there is a diﬀerence between UFCF deﬁned above and what are referred to as “free cash ﬂows” in Exhibit 13 (on line 14)? • Discount Rates. As we mentioned when discussing the Marriott case, the choice of discount rates is an important part of any valuation procedure. It is...

...ASSIGNMENT 1: Strategic Corporate Finance
Type of Assessment: CaseStudy: 2500 words (equivalent)
Submission deadline: Upload to Moodle before 14:00 noon Friday 22nd March 2013.
Weighting: 50% of module mark
Uploading to Moodle
* Attach the feedback sheet and marking grid to the front of your assignment
* Upload your spreadhseet
Learning outcomes
1. Analyse different capital budgeting techniques
2. Evaluate the information derived from different capital budgeting techniques
Introduction
You work at the headquarters of the Yorkshire Wind Farm Company and are responsible for the evaluation of capital projects. The business is currently trying to decide between 2 proposed wind farms. One is onshore, located in the Yorkshire dales and the other is offshore, a few miles from Scarborough.
Each project has a capacity of 10MW and a life of 20 years. In general, offshore wind farms costs more to build but there is more wind they will generate more electricity.
Revenue and costs
Revenue will come from selling the electricity to distributors. A tariff of £70/MWh is what is the government is currently guaranteeing.
The amount of electricity generated depends on the strength of the wind and the number of hours of generating that is expected. The wind farms are expected to generate the following amounts of electricity:
| Onshore | Offshore |
Annual output (MWh) | 31,000 | 50,000 |
It is expected that a full...

...Introduction
In this case we get an entire scenario about how the Japan deflation set in, what were the effects of the deflation on the economy as well as on the people of Japan. It also mentions about the various reasons because of which Japan was in such a tight grip of Deflation, Depression, Demographics and Debts Guides us through the steps taken by the government in order to curb this deflation. Imparts a great knowledge to us about the various economic terms like deflation, self-liquidating credit, Non-Self Liquidating Credit and how the people and economy of a country is affected by these.
Free markets economies are subject to cycles. Economic cycles consist of fluctuating periods of economic expansion and contraction as measured by a nation's gross domestic product (GDP). The length of economic cycles (periods of expansion vs. contraction) can vary greatly. The traditional measure of an economic recession is two or more consecutive quarters of falling gross domestic product. There are also economic depressions, which are extended periods of economic contraction such as the Great Depression of the 1930s.
From 1991 through 2001, Japan experienced a period of economic stagnation and price deflation known as "Japan's Lost Decade." While the Japanese economy outgrew this period, it did so at a pace that was much slower than other industrialized nations. During this period, the Japanese economy suffered from both a credit crunch and a liquidity trap....

...
CASESTUDY NO.1
Mary Roberts had been with the company three years when she was promoted to manager of the tax department which was part of the controller’s division.Within four months she became a supervisor of ten staff accountants to fill a vacancy.Her superior believed her to be most qualified individual to fill the position.
Many senior employees resent her that she so young to fill the position and what made them more upsets was the fact tax managers did not discuss the promotion.
QUESTION:
1.What can Mary Roberts do about the resentful senior employees?
Mary should tackle this head on she should be direct and assertive about her expectation and when people are crossing the line that means she need to be clear with people when their behavior doesn’t meet her standards and she need to be willing To set and enforce consequence if it doesn’t change
2. Can higher management do anything to help Roberts make the transitions to greater responsibility?
Yes, because they are the one who put her in that position of course they will help Mary interms of guiding it `.
3. Will her lack of technical knowledge hinder Mary’s managerial effectiveness?
No , because lacking on some aspects on technical knowledge cant bankrupt or destroy a company as long she have a guts to face and accepts failures
4. Should Mary’s superior have discussed the promotion with the senior employees before announcing it?
No ,because its not their obligation...

...February of 1999. In the past four months, the NC design had developed
sustainability. The Bostrom alliance agreement for the truck market had been concluded. The
question about Elio's strategy for the entry into automobile still remained. Should Elio's joint
venture with Bostrom? Should it partner with a tier-one or a tier-two automotive supplier?
Was Elio's technology strategy aligned with the requirements for a successful entry into the
automotive market? Paul and Hari realized that they needed answers to these questions in
the coming days.
This casestudy discusses the start-up, origins and strategic options facing an innovative set up
and start up in automotive market and in the seat design. With the domination of the
incumbent large suppliers serving the top 3 leading tier-one automakers of U.S.,
Elio
Engineering faces several challenges as it seeks to introduce its new seating technology to the
market. The case can serve as vehicle to discuss important themes such as technology and
business strategy, invention and innovation, bringing technology to market and profiting from
innovation.
Elio's should make a joint venture with Bostrom. Elio's has made a seat design naming "No
Compromise" with progress on cost, weight and performance compared to the conventional
design and also the existing all-belt-to-seat (ABTS). After many functional prototypes and
computer aided structural analysis, a perfect design...